This is What a Biotech Selloff Looks Like

By Ben Levisohn

If the biotech rally were the band Oasis, today’s big drop would be like the release of Be Here Now. After selling millions of copies of DefinitelyMaybe, their debut, and (What’s the Story) Morning Glory?, the one with “Wonderwall” on it, the band’s third album sold 350,000 copies on the day it was released–and really marked the end of Oasis, even if the albums kept coming.

Like Be Here Now on its first day of release, biotech stocks moved massive volume in today’s trading. MKM Partners’ Jonathan Krinsky explains:

With the [iShares Nasdaq Biotechnology ETF (IBB)] down ~4.6% today, it would be the worst day since August 18, 2011 (-4.70%). With 30 minutes left in the session, volume is already over 4.5m shares, which is the highest volume in the ETF since March 2nd, 2009. At that time, however, the price was ~$60 vs. $246 today. If we look at Value Traded (Price x Volume), it is already at 1.15bn, or the HIGHEST ON RECORD for this ETF (going back to 2001). The previous high was 1.005 bn on 3/7/14.

Whether this public posturing damages investor confidence in the industry as a whole and its valuation remains to be seen, but we think such an effect is unlikely. On the other hand, the rapid sell off in the stocks today in response to an essentially toothless demand, does suggest some wavering of conviction on the part of major investors in the group. This could, over time, if not countered by positive newsflow, turn into a more significant correction.

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There are 6 comments

MARCH 21, 2014 9:07 P.M.

Larry wrote:

It was caused in part by triple witching. Time to buy...Earnings are what ultimately drive stock prices...

MARCH 22, 2014 2:53 P.M.

William Loper wrote:

Totally puzzled by the Oasis reference. Try to keep your musical metaphors to a minimum, we have enough confusion in the marketplace already. And why Oasis and biotech have anything in common ... ?

With $BIB -9% on the day, and $CELG -5%, $GILD -5% and BIIB -8%, after most are up 300% in 1.5 years, it's more than just a passing flinch, and destined to be a CRASH, taking down $QQQ and $IWM with it as biotech was 11 of top 14 best performers in 2013 for $IWM. Buy $BIS - and Oasis didn't sing about shorting biotech either.

MARCH 22, 2014 3:29 P.M.

Anonymous wrote:

Love that album.

MARCH 23, 2014 11:32 P.M.

Lumberg wrote:

Allah Aknafr

MARCH 31, 2014 6:30 A.M.

BioBill wrote:

The whole biotech industry knows the big rally of the past couple of years was already more than they hoped for and not going to last, so they sold as much equity as they could while the sun was shining. The IPO window before this one was about 10 years earlier. Everyone's hunkering down for a deflation, and then another several years before retail and generalists drive the market up again. I think expect a lot more selling from here.

APRIL 4, 2014 1:32 P.M.

tito perdue wrote:

This author's attachment to trash music provides a good index to how seriously he should be taken.

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Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.